"Labour market and COVID-19: between vulnerability and pandemic".

Elpidio González  

Graduated in economics from the University of Panama. He has conducted research in the area of agricultural economics and labour markets. He is currently studying for a Master's degree in Agricultural Economics at the University of Buenos Aires.

Danilo Rivera

Economist, graduated from the University of Panama with almost 4 years of professional experience. He is involved in studies, research and has even participated in the elaboration of the book "Resilient Fiscal Rules in Latin America" and the Journal of Scientific Initiation of the UTP "The importance and prices in the rice production chain during the period 2001 - 2014".

The emergence of the coronavirus and its harmful effects on human health have generated multiple effects across the globe. In addition to the incipient death toll from the virus, one focus of attention is on the impact of measures taken to mitigate the spread of the virus on the economy. According to the International Monetary Fund, the forecasts are of a similar magnitude to those experienced during the Great Depression of 1929, the worst economic crisis in contemporary history. This will undoubtedly materialise in a considerable deterioration of the labour market and with it, a large proportion of the world's workers will experience a decline in their quality of life. The International Labour Organisation estimates that the confinement measures and the consequent paralysis of the economy affect approximately 2.7 billion workers worldwide; that is, 81% of the labour force (ILO, 2020), while recent figures from the United States indicate that, between February and March 2020, more than one million people joined the ranks of the unemployed in that country. There are currently a total of 7,140,000 unemployed workers[1].

This particular scenario has put the global economy in turmoil, but the adversity will be much greater in countries with fragile labour structures, such as those that characterise developing economies like Panama. In this context, the labour market presents potential risks. Since the mid-1970s, the structure of the Panamanian economy has increased its orientation towards the tertiary sector, which has resulted in a concentration of production and employment in very specific economic activities. This transitional model of economic development is a determinant of the fact that 77 per cent of the country's employed people work in the service sector, one of the sectors most affected by the pandemic. However, this does not mean that 77% of the employed are unemployed, since before the coronavirus it already affected 146,111 people (7% of the economically active population, EAP). Nor does it mean that the tertiary sector is the only one affected.

It is clear that there are sectors and economic activities that are much more affected by the economic situation. According to the ILO and recent national government measures, there is a set of activities that are expected to have a greater negative impact in terms of employment, such as hotels and restaurants; commerce; transport, storage and telecommunications; arts, entertainment and creativity; construction as well as mining[2]. According to data from the National Institute of Statistics and Census (INEC), it is estimated that around 795,408 people depend directly on these activities; in other words, two out of every five inhabitants of the country are employed in sectors that have been forced to halt operations, so the livelihoods of their households may be at risk.

The stoppage of economic activity has resulted in recent weeks in the suspension of labour contracts and wages, measures envisaged in the emergency decrees. One possibility of very short-term relief for affected employees could be to draw on their personal savings. Two clarifications are necessary here: Only 61% of the country's workers are employees, and of the activities mentioned, 59% are employees. This means that a significant number of workers at the national level do not necessarily earn a stable current income that would give them a margin of savings to cope with this situation. In addition, 61% of total wage earners and 68% of the activities mentioned earn less than 800 dollars per month, a figure that, regardless of the level of labour productivity, is present in a country that has been characterised by a high cost of living, which means that the propensity to save is very limited.

Another policy implemented in the framework of social distancing is to work from home. However, this is not a valid option for the majority of the population. Recent studies such as those by Mongey and Weinberg (2020) have shown that the occupations most affected by these measures are generally carried out by people in a situation of economic vulnerability, as they are jobs characterised by the demand for low-skilled labour, low wages and no social security. Nor should it be assumed a priori that, if telework were to become widespread, all workers would have the necessary infrastructure to carry out their assignments remotely.

The phenomenon of labour informality is another point that should not be overlooked, especially in a region like Latin America, where an estimated 140 million workers, or 53% of its workforce, are informal. This population is even more vulnerable to the current cataclysm, as their earning potential is closely linked to the formal sector. According to INEC estimates, 40% of Panama's active labour force (716,174 workers) is in this category, 56% of whom work in hotels and restaurants, construction, commerce, transport, storage and communications, the activities most affected by the social distancing measures.

This poses a challenge for the survival of this population, mainly in households where all members are linked to this sector of the economy, a situation that becomes more relevant if we consider that "in Latin America there is selective matching, (...) a phenomenon whereby people choose to marry people similar to themselves, in terms of educational level, ethnicity and other characteristics, including the propensity to be informal" (Busso & Messina, 2020).  

If we analyse the structure of households according to their income level and according to their participation in the formal labour market, using data collected by Busso & Messina (2020), we observe that in Panama, approximately 15% of households in the highest income quintile do not have any member working in the formal sector, while in the lowest income quintile, about 80% of households do not have any member linked to the formal sector. This shows that the situation also affects people with lower incomes more, since the fact that a member of the household is still working in a company increases the likelihood that he or she will have an income to cope with this situation, or at least have the certainty that when the situation ends, he or she will be guaranteed continuity in his or her job.

Any economic policy measures to mitigate the severe effects of the pandemic must have the most vulnerable workers at the centre, as the country's wealth generation depends on them.

Konrad-Adenauer-Stiftung e.V.

Regional Programme ''Alliances for Democracy and Development with Latin America (ADELA)''.

Albrook 16, Cl. Las Magnolias, Ancón

Panama City / PANAMA

References

Busso, M., & Messina, J. (April 2020). Social distancing, informality and the problem of inequality in Latin America. Retrieved from: https://blogs.iadb.org/ideas-que-cuentan/es/distanciamiento-social-informalidad-y-el problema-de-la-desigualdad/

National Institute of Statistics and Census (August 2019). Household Survey 2019. Tables 8, 10 and 25. Retrieved from: https://www.inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=971&ID_CATEGORIA=5&ID_SUBCATEGORIA=38

National Institute of Statistics and Census (August 2019). Household Survey 2019, status of the employed population. Tables 9. Retrieved from: https://www.inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=972&ID_CATEGORIA=5&ID_SUBCATEGORIA=38

Mongey, S., & Weinberg, A. (March 2020). Characteristics of workers in low work-from-home and high personal-proximity occupations. Becker Friedman Institute. Retrieved from: https://bfi.uchicago.edu/wp-content/uploads/BFI_White-Paper_Mongey_3.2020.pdf

International Labour Organization (March 2020). Retrieved from: https://www.ilo.org/americas/sala-de-prensa/WCMS_645596/lang--es/index.htm

[1] U.S. Bureau of Labor Statistics. The situation employment: March 2020. Retrieved from: https://www.bls.gov/news.release/pdf/empsit.pdf

[2] In the ILO report, construction and mining are not considered high negative impact activities, however, it is included in this analysis as construction work in the country was suspended on 21 March and the country's largest mining company also announced the cessation of operations.